Surging inflation will dampen the growth of food delivery services globally

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The majority of consumers have prioritized convenience over cost for the past two years. Whether it was about having at-home meal kits or getting their food delivered from a favored restaurant, food delivery services turned out to be the biggest beneficiary of the global pandemic outbreak.

Some of the leading players in the food delivery space, such as DoorDash Inc., Deliveroo, and Uber Eats, registered significant growth, which was largely driven by the fears of Covid-19 infection and the suspension of restaurant dining. Similarly, Blue Apron Holdings Inc., a meal-kit provider that was struggling in the pre-pandemic period and considered itself up for sale, registered high growth in order volumes after the Covid-19 outbreak. 

In H1 2022, the surging inflation, along with the rising momentum of restaurant dining, is threatening the growth of food delivery businesses. Inflation, in particular, is expected to have a greater impact on sector growth. Notably, customers are more likely to pull back on their discretionary spending as the cost of living continues to rise. Many might decide to give up ordering food multiple times a month to cope with the rising prices, thereby having a direct impact on the growth of food delivery platforms.

Order volume for food delivery platforms recorded a sharp decline in the United States in H1 2022

The leveling off of Covid-19 cases, along with the return of consumers to restaurants, has resulted in a sharp decline in order volumes for food delivery platforms in the United States. Notably, this decline in the usage of food-app deliveries can be largely attributed to higher food prices, fees, and tips, which is turning off many in the United States.

The shift towards online ordering seems to have plateaued. There is a greater chance that the order volumes for the food delivery platform will slip a bit further, given the constant inflationary pressures faced by consumers, along with the fact that they deal with higher fees incurred through third-party apps. One of the players that have faced a significant decline in order volume is GrubHub.

• In Q1 2022, GrubHub experienced a significant decline in order volume as jurisdictions like New York imposed measures such as fee caps. This, coupled with an ongoing slowdown in the number of orders from employees returning to the office, has put pressure on Just Eat, the owner of GrubHub. In April 2022, Just East, the Netherlands-based parent company of GrubHub, also announced that it is considering a potential sale of the US-based delivery app.

With food delivery food apps long struggling for profitability, many are now expected to cut costs while expanding into new verticals like medicine and grocery delivery.

Food delivery platforms in Europe are projected to cut down their growth forecast in H2 2022

In Europe, too, food delivery platforms are under the pressure of surging inflations and cost of living. This, coupled with rising labor costs, means that the environment for food delivery platforms remains tough. To combat the effects of these factors and cut down costs, European food delivery platforms are also considering shutting down their operations in some regions. For instance,

• After reporting a pretax loss of £147.3 million in H1 2022, Deliveroo, the United Kingdom-based food delivery platform, announced in August 2022 that the firm is considering and consulting on plans to exit its operations in the Netherlands. This would be the latest withdrawal from yet another major European market before which Deliveroo retreated from Spain and Germany.
• Deliveroo, which also signed McDonald’s to its platform as part of its global partnership in May 2022, is focusing on other business verticals to drive revenue growth. Notably, the firm has signed up non-food retailers such as LlyodsPharmacy and WHSmith, which is part of the firm’s strategy to weather the storm of the possible recession.

With the revenue growth slowing down dramatically for several food delivery platforms, PayNXT360 expects European firms to focus on profitability, just like their counterparts in the United States. With thin margins and plenty of competition in the sector, the market has seen growing consolidation in H1 2022, a trend that PayNXT360 expects to continue further in H2 2022.

To know more and gain a deeper understanding of the global B2C e-commerce market, click here.